Monday, August 07, 2006

Calls of Note Part 1

- Prudential believes that the ramp of Intel's latest desktop offering, Core 2 Duo (code-named Conroe), will be slower than expected due to brand confusion and chipset tightness.

Firm thinks that the transition of Intel's desktop performance brand from Pentium to Core 2 Duo is creating some confusion in the market. Some Pentium MPUs are now at price points historically held by its value-branded Celeron MPUs! For the performance desktop category, they think that customers are asking the question "why spend $180 for a Conroe when you can get a Pentium for $80?"

Furthermore, recent press about Conroe chipset (965G) issues, along with GM Sean Maloney's comments about chipset tightness at the Conroe launch indicates a higher risk on the Conroe ramp.

In addition to these concerns, the firm still remains concerned that high inventories at Intel will lead to further gross margin erosion, and that Dell could make a major shift to AMD on the client side.

Continues to believe that Street estimates are too high - firm's CY07 EPS estimate of $0.90 is $0.15 below consensus. Remains Underweight the stock with a $14 price target.

Notablecalls: Pru has been negative on INTC for quite some time. The call is not actionable but hard to ignore as it highlights the biggest problem Intel is facing today - even if they lower prices the consumer won't be so willing to buy their stuff. A Pentium for $80 sounds a bit fishy (is it obsolete?) and a Conroe for $180 too expensive compared to AMD.

- Soleil Securities Group's Peter C. Friedland comments on SiRF Tech (NASDAQ:SIRF) saying that although Q4 remains a ways off, he believes the current Q4 consensus revenue estimate looks high, calling for 8% sequential growth, up from 10% sequential growth expected in Q3. While the firm believes SiRF should clearly benefit from strong holiday-related demand in the PND market, which accounts for 40%-50% of revenue, they believe that SiRF captures most of the sequential growth from this seasonal effect during Q3. Therefore, since the analyst has modeled in just flattish sequential revenue growth for Q4, his Q4 numbers are below consensus.

Bottom-line: Given the recent sell-off in SIRF shares, and with the stock now trading at a forward PE of roughly 20x, Mr. Friedland believes the risk-reward at current levels has shifted more toward the positive side than before. However, given the sensitivity of SIRF shares to quarterly results and guidance, he believes Q4 consensus could potentially pose an issue when SiRF provides its Q4 guidance with Q3 results in October. Maintains Hold.

Notablecalls: Not actionable but good to know category. Maybe SIRF is a short in the $24 area but surely not here.